Question

QUESTION 20

1. If the following quotes are on September 15, 2012, what was the coupon rate for the JD.VR bonds with $1,000 face values and semiannual payments?

   Company (Ticker)	Coupon	Maturity	Last Price	Last Yield	$ Vol. (000s)
   Jim Doe (JD.VR)	?	Sep 15, 2034	117.02	6.6	6,360

   (Do not include the percent sign (%).Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Answer 1

Annual coupon rate for the JD.VR bonds

The Coupon rate of the Bond is calculated using financial calculator as follows (Normally, the rate is calculated either using EXCEL Functions or by using Financial Calculator)

Variables	Financial Calculator Keys	Figure
Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount	PMT	?
Market Interest Rate or Yield to maturity on the Bond [6.60% x ½]	1/Y	3.30
Time to Maturity [(Sep 15, 2012 to Sep 15, 2034) x 2]	N	44
Bond Price/Current Market Price of the Bond [-$1,000 x 117.02%]	PV	-1,170.20

We need to set the above figures into the financial calculator to find out the semi-annual coupon amount. After entering the above keys in the financial calculator, we get the semi-annual coupon amount (PMT) = $40.39.

Here, we get semi-annual Coupon amount = $40.39.

Annual Coupon Amount = $80.78 [$40.39 x 2]

The coupon rate is calculated by dividing the annual coupon amount with the par value of the Bond

So, Annual Coupon Rate = [Annual Coupon Amount / Par Value] x 100

= [$80.78 / $1,000] x 100

= 8.08%

“Hence, the coupon rate for the JD.VR bonds will be 8.08%”